Pay at time of service healthcare
There's an article on the front page of today's Wall Street Journal about "pay at time of service" healthcare (see Pay-as-You-Go M.D.: The Doctor Is In, But Insurance Is Out - subscription required). The article features two doctors who got sick and tired of having to deal with insurance companies, so they stopped dealing with them altogether. Consequently, they are now able to offer the same services for less money than doctors who take insurance, because they don't have to deal with the administrative overhead of third party billing.
I don't think most people realize how incredibly wasteful our healthcare insurance system is. I used to work at a company that provided healthcare services, and we had a department of a hundred people who dealt with billing issues. Mostly they submitted claims to insurance companies and then followed up on them. At the same time, there were large numbers of employees at the insurance companies whose job it was to review claims and deny them, often for nitpicky reasons like putting the information in the wrong field on the claims form.
Even the solo-practitioner family doctor requires a staff of people to do insurance billing. One of the doctors in the WSJ article says he was able to reduce his office staff from seven to two part-timers after he stopped taking insurance money.
The article points out that paying customers, who are usually people who don't have jobs, are subsidizing the health care of those with insurance, because at most doctors' offices, the full price that the non-insured patient pays is more money than the doctor would be reimbursed by an insurance company. And that doesn't include the significant administrative expense of submitting the claim to the insurance company and following up on it.
What the article fails to mention is that doctors are usually prohibited from giving cash customers a discount. From the perspective of Medicare or an insurance company, they are being cheated if the doctor bills them more than the doctor charges non-insured patients. So the only way a doctor can offer more affordable services to the non-insured is if they completely sever their relationships with insurance companies and Medicare, like the doctors in the WSJ article did.
There are even some patients with insurance who prefer to see the non-insurance doctors:
Ms. Spencer says it's difficult to get a timely appointment to see a doctor who accepts her medical insurance and when she does, it's a long wait at the office. Compounding the frustration, her Blue Cross & Blue Shield coverage requires her to pay $20 at each visit. By contrast, the charge at Patmos is usually $35. "For an extra $15, it's worth coming down the street," says the 32-year-old sales representative.
As demonstrated by the quote above, one of the side benefits of doctors having to compete in the free market is that they also have to offer better service in addition to lower prices. Pay as you go healthcare sounds like a great idea! Why don't we have more of it?
A combination of the tax code and people's lack of understanding of basic economics locks us into the inefficient health insurance system we currently have. Health insurance benefits paid by one's employer are pre-tax. This means that if you're in a 45% tax bracket (and right now I'm too lazy to figure out what the real tax bracket is so that number is made up, but the high number is supposed to account for FICA and state taxes as well as federal income tax), this means that there is a $1,125 tax benefit when your employer pays for a $2,500 insurance plan.
With such tremendous tax incentives as demonstrated above, and with the public convinced that health insurance is their right as an employee, it is not likely that we will see many people embrace the pay at time of service model in the immediate future. For the record, I am strongly opposed to tax rules like this which distort the free market and encourage us to buy inefficient health insurance plans. I wish that Congress would have a common sense attack one day and simply eliminate all these special tax rules. Probably the health insurance lobby is hard at work making sure this doesn't happen.
posted Thursday, November 06, 2003